Pressure to close mining tax loophole intensifies

THE federal government has been given the green light to break its deal with the miners and close the loophole in its mining tax that has enabled the states to gouge the proceeds through royalty increases.

The recommendation is contained in the final report by an expert panel that also urges the government to immediately halve the $1000 GST-free threshold for overseas purchases made on the internet. It recommends the government then look at reducing that threshold further, to as low as $20.

With state budgets under severe pressure due to sluggish growth in GST revenue, the GST Distribution Review by the former premiers Nick Greiner and John Brumby and the businessman Bruce Carter, published on Friday, said collecting more tax from overseas online purchases should be a ''high priority''.

This would allow the government to dramatically lower the threshold without the expense of having to handle hundreds of thousands of extra parcels - the dilemma it faces now.

The Treasurer, Wayne Swan, will discuss the report with his state counterparts on December 17, before responding.

While the pressure to bring the mining tax back to Parliament to close the loophole will intensify, such a move would spark a war with BHP Billiton, Rio Tinto and Xstrata, which launched a $22 million advertising campaign against the original mining tax.

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When the mining tax was renegotiated after Kevin Rudd was dumped as prime minister in 2010, the government agreed the miners could deduct all present and future state royalties from their mining tax liability. This meant that every time a state raised mining royalties on iron ore or coal, the proceeds of the mining tax were reduced.

The report released on Friday said the present situation was neither ''desirable nor sustainable'' and the mining tax revenue needed to be secured. At the same time, the states should be free to raise their royalties as they wished but had to be accountable for any increases to the mining companies.

Mr Swan had previously flagged that states which raised royalties could be penalised by having their GST payments docked, but this was impractical. Another threat by Mr Swan was to withhold other federal funding as a penalty, but the review panel found this, too, was awkward.

It argued that the preferred option was for the Commonwealth and the states to negotiate a ''co-operative approach'' to taxing the mining industry and share mining revenues.

It said the onus was on the Commonwealth to take a lead in any negotiations because it created the present situation. But with relations between the Gillard government and the Liberal-led mining states poor, any co-operative agreement is unlikely.

The review panel said in this case, the design of the mining tax, as well as the petroleum rent resource tax, should be revisited ''so as to delink them from future state decisions''.

The Greens and the independent Rob Oakeshott support amending the tax in Parliament.

But the Minerals Council of Australia's Mitch Hooke warned against changing the tax. ''Perpetual uncertainty around the tax arrangements … continue to undermine investor confidence in Australia when commodity prices are down,'' he said.